NEWMARK KNIGHT FRANK

REAL ESTATE AND ANTI-KICKBACK STATUTES BY GARTH HOGAN

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As if hospital executives didn’t have enough to keep them up at night, with their days spent trying to cut costs while improving efficiencies and outcomes, they are also concerned with risk mitigation as it relates to “anti-kickback” statutes, such as Stark, Safe Harbor and Fraud & Abuse. Over 50% of investigations by the Officer Inspector General (OIG) begin with real estate. Hospitals and health systems have paid hundreds of millions of dollars in penalties and fines, which continue to increase. It’s important, therefore, to have a basic understanding of these statutes and how they may apply to real estate decisions.

We recommend that hospital executives and real estate managers are updated regularly on how to navigate new and existing real estate transactions with physicians who are referring patients to the hospital. The most common violations occur in the following situations: 1) time-share agreements, 2) generous tenant improvement allowances, 3) excessive free rent, 4) calculation of useable vs. rentable square footage, 5) enforcement of market rates and terms, utilizing third party fair market value (FMV) assessments, 6) enforcement of rent escalations, 7) enforcement of rent collection, and 8) lease term and expiration/renewals. Without proper training, it’s easy to let transactions under these circumstances to slip through the cracks. It’s never too late for hospitals to perform lease audits and begin the process of correcting violations and bringing all leases into compliance.

Going forward, hospitals can adopt new standards and avoid future violations if they establish real estate compliance policies and procedures, along with the proper training. We’ve found that it’s actually easier to enforce strict adherence to real estate compliance standards than it is to bend the rules. Most physicians and group practices will respect a hospital’s decision to make compliance important early in any lease negotiation, rather than open the door to flexibility. Trying to unravel a non-compliant transaction once it has been executed can be a political disaster and huge liability for hospital administrators.

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2017 Healthcare Real Estate Outlook